Infosys Q3 Results: Profit Dips, But Guidance Upgrade Lifts Stock

Introduction

Infosys Ltd., India's second-largest IT services provider, announced its third-quarter results for fiscal year 2026, presenting a mixed but ultimately optimistic report. While the company's consolidated net profit saw a sequential decline, a significant upward revision of its full-year revenue guidance fueled strong investor confidence. The market responded positively, focusing on the company's robust deal pipeline and future outlook rather than the temporary impact on profitability.

Financial Performance in Q3

For the quarter ending December 31, 2025, Infosys reported a consolidated revenue of ₹45,479 crore. This marked a 2.2% increase from the previous quarter and a notable 8.9% rise year-on-year, surpassing analyst expectations. However, the consolidated net profit for the quarter stood at ₹6,654 crore, a decrease of 9.6% sequentially. The company's Earnings Before Interest and Taxes (EBIT) was ₹9,479 crore, reflecting a 1.3% sequential increase, with an EBIT margin of 20.8%.

Impact of One-Time Provision

The decline in net profit was attributed to a one-time provision of ₹1,289 crore. This exceptional item was related to compliance with new government labour codes in India. Without this provision, the profit figures would have aligned more closely with the company's steady operational performance. Management clarified that this was a non-recurring expense, allowing investors to look past the headline number.

Upgraded Guidance Signals Confidence

The most significant development from the earnings announcement was the upward revision of Infosys's revenue guidance for the full fiscal year 2026. The company now projects revenue growth in the range of 3.0% to 3.5% in constant currency terms. This is a notable increase from the earlier forecast of 2% to 3%. This upgrade signals strong management confidence in the demand environment and its ability to secure and execute projects. The company also maintained its operating margin guidance for the fiscal year at 20% to 22%.

Strong Deal Momentum Continues

Infosys's optimistic outlook is supported by its strong performance in securing large deals. The company reported a Total Contract Value (TCV) of $1.8 billion for the quarter, a substantial figure for what is often a seasonally weaker period for the IT industry. Crucially, 57% of this TCV came from net new business, indicating the company's success in winning new clients and expanding its market presence.

Key Financial Metrics for Q3 FY26

Management Commentary

CEO and MD Salil Parekh attributed the company's success to its differentiated offerings, particularly in enterprise artificial intelligence. He stated, "Infosys delivered a strong Q3 performance demonstrating how our differentiated value propositions in enterprise AI, through Infosys Topaz, are consistently driving higher market share." He added that clients increasingly view Infosys as a key partner for their AI-driven transformations.

CFO Jayesh Sanghrajka highlighted the company's operational strength, noting that Infosys had onboarded 18,000 freshers so far in the fiscal year. He also pointed to the robust free cash generation of $165 million during the quarter as a sign of financial health.

Market Reaction and Stock Performance

The market's reaction was overwhelmingly positive. Investors focused on the upgraded guidance and strong deal wins, largely ignoring the one-time hit to net profit. In the United States, Infosys's American Depository Receipts (ADRs) surged by as much as 8.6% to $19.03 following the announcement. On the domestic front, Infosys shares rallied by 5.45% to trade at ₹1,686.90 on January 16, 2026, reflecting the positive sentiment carrying over to the Indian market.

Operational Stability and Outlook

Beyond the financial figures, Infosys showed signs of improved operational stability. The company's attrition rate on a last-twelve-months basis eased to 12.3%, indicating better employee retention. The significant hiring of freshers also signals a healthy talent pipeline to support future growth projects.

Analysis and Conclusion

Infosys's Q3 FY26 results demonstrate the company's resilience and strategic focus. The decision to raise revenue guidance amidst global macroeconomic uncertainties suggests that demand for digital transformation and AI-led services remains strong. The market's positive reaction underscores a belief in the company's long-term growth trajectory, driven by a strong deal pipeline and leadership in emerging technologies. The focus for investors now shifts to the company's ability to execute on its robust order book and convert its deal wins into sustained revenue and profit growth in the upcoming quarters.